VAT: Mail mayhem

VAT on postal services is something of a hot topic at the moment – and it’s not good news for the taxpayer.

The long-awaited tribunal decision in the case of Zipvit was very disappointing. Zipvit had contended that it had been charged VAT on certain services supplied to it by Royal Mail. However, Royal Mail had erroneously treated those services as VAT exempt. Royal Mail had, therefore, not accounted for VAT on these sales or issued VAT invoices in respect of them.

The Tribunal concluded that, whilst Zipvit did, in theory have the right to reclaim VAT on these supplies, it did not hold a VAT invoice or acceptable alternative evidence and was therefore precluded from reclaiming any VAT.

We expect that this decision will be appealed, so watch this space.

There has also been bad news for the charity sector. HMRC wrote to the direct mail association recently to advise advertising mail suppliers that they can no longer cut VAT bills for charities by combining postage and production costs together into a single zero-rated supply. Some estimates suggest that this could increase costs for the charity sector by as much as £18 million.

Key message: Charities who use direct mailing need to consider their position and budget for potential additional VAT costs as a matter of urgency.